A beacon for agricultural growth in Vietnam

>> VN's agriculture sector targets growth between 3.2-4% in 2024

Hit by economic headwinds, 2023 was a challenging year for global trade, and Vietnam being twirled in that circle saw significant drop in their export volumes. First quarter of 2024 continues to witness global maroeconomic downturn, rising inflation, geopolitical uncertainites and trade disruptions (e.g. Red Sea issue), which will have an indirect impact on global trade and eventually on Vietnam. But despite these challenges, there’s one sector which clearly stood head and shoulders above the others, that is agriculture.

A pillar in Vietnam’s GDP

Contributing roughly 12% to Vietnam’s GDP, agriculture has long been the backbone of Vietnam’s economy for a number of comparative advantages like cultivation land, forest cover, sea territories, tropical climate, available and cost effective labor. In 2023, Vietnam’s agricultural sector experienced its highest growth in the past 10 years reaching 3.83%, with rice production going up by 1.7%, meat production increasing 3.5% whereas fishery products was up 2.9%. The high yields boosted the agriculture sector’s export turnover to over US$53 billion, while the trade surplus was more than US$12 billion, accounting for 42.5% of Vietnam’s total trade surplus.

Surajit Rakshit, Country Head of Global Trade and Receivables Finance, HSBC Vietnam, said Vietnam currently exports a broad range of agricultural products all over the world. Its key exports are rice, coffee, cashew nuts and fruits and vegetables, accounting for more than US$16 billion of agricultural exports. Among them, many have successfully gained access to new markets. Since the beginning of the year, we have seen that durian, coffee and rice prices have increased by 20%, c.5-9%, and 6% respectively. The total export turnover of agricultural, forestry and fishery products could estimatedly climb to US$54-55 billion in 2024.

Shining amidst global agriculture

Thanks to the rapid growth, Vietnam is becoming a key player in global agriculture. Last year the World Economic Forum (WEF) selected Vietnam as one of the first three countries to pilot the Food Innovation Hub, a flagship initiative of the Food Action Alliance designed to improve sustainability in food production.

Besides, Vietnam’s Government has put a lot of effort in promoting agriculture, placing it under the global spotlight. One of them was Ministry of Agriculture and Rural Development (MARD)’s decision in December 2023 to approve the establishment of the scheme on Food Innovation Hub Vietnam (FIHV), aiming to foster more innovation.

“Vietnam’s 16  Free Trade Agreements (FTAs) along with a few others under negotiation have paved the  path for its agriculture exports. Taking the EU-Vietnam Free Trade Agreement (EVFTA) as an example, this FTA has helped Vietnam eliminate up to 94% of tax lines for fruits and vegetables, creating a competitive advantage over Thailand and China. Specifically for rice, the preferential tariffs from EVFTA has benefitted Vietnam compared to countries like Cambodia, Thailand and India. Vietnam has now become one of the largest sources of cashew nuts and coffee for the EU”, said Surajit Rakshit.

Moreover, in 2018, MARD issued a list of key national products, which includes rice, coffee, rubber, cashews, pepper, tea, etc. They are eligible for preferential support measures including exemptions from or reductions in land or water surface rents, preferential credit, human resources training, etc.

Green agriculture

Tackling climate change is a key focus area for the Goverment to help agriculture sector to thrive sustainably. Due to Vietnam's geographic exposure, it is particularly susceptible to climate change with a serious effect on agriculture.

Following Vietnam's bold net zero commitment at COP26, the Government approved the National Green Growth Strategy 2021-2030 with vision to 2050, which is an important policy document for the country’s economic growth and sustainable development, with specific goals related to greenhouse gas emission reductions. The proportion of organic fertilizer products, the use of biological pesticides as well as applying advanced water-saving irrigation methods are expected to rise substantially over the coming years.  

>> Bright spots seen in Vietnam’s agriculture sector

Last year, the Vietnamese Government also approved the National Electricity Development Plan for 2021 – 2030, with a vision to 2050. Known more commonly as the Power Development Plan 8 (PDP8), after almost three years in the making, this masterplan highlights the significant investment required to develop Vietnam’s energy sector and presents potential opportunities for foreign energy firms. “Once executed, this would encourage more clean energy projects in agriculture production, protecting the environment as well as saving energy cost. This would create a path to attract international investors in agriculture to the country, positively impacting the growth of the overall sector”, Surajit Rakshit stated.

Consensus on growth

From agriculture companies to financial institutions, agriculture’s sustainable growth has been the key topic. Agriculture companies have become more proactive and serious in developing and executing their sustainability strategy – from circular economy, to sustainable supply chain, and other environmental and community support programs. In Surajit Rakshit’s view, the focus on green agriculture not only helps Vietnam reduce its carbon footprint in agriculture productions, but also meets the increasing demand from export markets such as the US or EU.

Through the growth of the industry, those companies have also become much more agile and sophisticated in how they manage their treasury activities, moving away from cash transactions to online platforms. They are also looking for ways to digitalize their internal activities, and further improve and optimize their working capital.

In the support given to this segment of corporates, the Government has provided various initiatives, notably the State Bank of Vietnam’s capped VND short term lending interest rate at 4%. Financial institutions also play a significant role in advancing agriculture's net zero agenda by channelling green finance, educating the market and helping agriculture companies build a sustainability mindsdet. Banks’ support is not limit ed to green trade or machinery/capex only, but also extending to provide guidance, financing as well as industry insights.

“For example, at HSBC, in line with our overall sustainability strategy, we have been helping clients, in different sectors such as farming, seafood exporters, animal feed companies, sugar exporters or dairy  companies, on their net zero transition journey. Our sustainability strategy has, at its core, a commitment to support our customers understand and act on their transition to lower emissions and to help them achieve their wider sustainability ambitions. We are leading the way to meet our client’s sustainability needs with solutions ranging from green trade financing options to sustainability linked loans to sustainable supply chain finance. Such solutions would open up a world of opportunity for agriculture companies to tap into green finance to support their growth and sustainability agenda”, said Surajit Rakshit.

Opportunities to seize

As a key pillar in the Vietnamese economy, agriculture has experienced momentous transformations over the past few years. However, to maximize these opportunities, in Surajit Rakshit’s opinion, it’s imperative to have certain policy changes to bolster innovation and hi-tech investments. A clearer execution plan for PDP 8 and Just Energy Transition Partnership (JETP) are necessary to materialize the benefits and attract foreign investments. The government also needs to provide certain incentives regarding green financing to ensure corporates can accelerate their transition plans at pace. “With a strong commitment from the Government and the multiple signed FTAs, the opportunities in the agriculture sector are enormous. We hope it continues to be a beacon for Vietnam’s GDP growth”, said Surajit Rakshit.